Fiscal Policy Lessons from Europe

The federal
government spends an enormous amount of money. Measured as a share
of national economic output, budgetary outlays are near a
peace­time high, consuming almost 21 percent of gross domestic
product (GDP).[1] Whether
it is measured in nominal dollars, in inflation-adjusted (real)
dollars, or on a per household basis, federal spending in America
is at record levels.

Moreover, this is just
the calm before the storm. Left on autopilot, the burden of federal
spending will increase dramatically. This is partially due to
demo­graphic forces, such as the looming retirement of the baby
boom generation, but is also the result of reck­less policy
choices, such as the creation of a new pre­scription drug
entitlement.

In a worst-case
scenario, the Congressional Budget Office (CBO) estimates that
government outlays could consume as much as 55.8 percent of GDP by
2050. Even a more optimistic scenario shows that the burden of
federal spending will still nearly double, climbing to more than 37
percent of GDP.[2]
Further­more, these figures do not count state and local
out­lays, which currently consume more than 11 percent of GDP
and will probably expand in future years.[3]

Many European nations
have already allowed the burden of government to climb to these
levels. Gov­ernment spending consumes more than 50 percent of
GDP in France and Sweden and more than 45 percent in Germany and
Italy.[4] These
nations provide useful lessons about the economic consequences of
bigger government, and these lessons suggest that America is on the
wrong track. Even a cur­sory review of European economic
performance shows that excessive government has serious adverse
effects: slower growth, higher unem­ployment, lower living
standards, and a bleak future.

One of the most
important les­sons to be learned is that GDP is linked to
policy. For instance, the CBO's long-run forecasts assume that
inflation-adjusted GDP will grow by about 2 percent annually,
regardless of whether government consumes 21 percent of economic
output or 56 percent of economic output. The dismal performance of
the European economies shows that this is a deeply flawed
assumption and indicates that America's future is at even greater
risk than the CBO estimates suggest. Bluntly stated, the United
States is in danger of becoming a decrepit welfare state like
France.

Comparing Europe and
the United States

Western Europe[5] and the
United States are wealthy, and both achieved this status over the
past two centuries in part because of sensible policies and
institutions. While much of the world was and still is crippled by
the absence of functioning mar­ket economies, Europe and the
United States have enjoyed centuries of remarkable growth thanks to
property rights, the rule of law, and minimal
gov­ernment.

For much of the 19th
century, many European nations were richer than the United States.
The United Kingdom and the Netherlands at various times have
enjoyed the globe's high­est living standards.[6] The
United States took the lead in the first half of the 20th century,
thanks to strong growth, but also because World War I and World War
II caused extensive damage to Europe.

In 1950, the United
States had nearly twice the per capita GDP of Western Europe. Over
the next two decades, however, European econo­mies enjoyed
strong growth.[7]
Amer­ica's advantage shrank, and a number of European nations
appeared to be on pace to surpass the United States.

Europe's Shift to
Statism

However, Europe and the
United States then began to move in oppo­site directions, and
public policy seems to be one of the biggest rea­sons for the
shift. Beginning in the late 1960s and early 1970s,
politi­cians in most European nations increased the size and
scope of gov­ernment. Government also expanded in America
during that period, but the increase was more muted. More
important, beginning in 1980, Amer­ica began to liberalize its
economy and curtail the growth of government.

As a result of these
historical differences, the bur­den of government in Europe is
substantially larger than it is in the United States. Chart 2 shows
that the burden of government spending relative to GDP has risen
dramatically in Europe, while the U.S. has largely avoided the same
mistake.

The growth of
government in Europe has re­sulted in considerable economic
damage because both spending and taxes undermine incentives to
engage in productive behavior. On the spending side of the ledger,
bigger government encourages people to rely on handouts rather than
individual initiative. On the revenue side, the higher marginal tax
rates needed to finance programs reduce incen­tives to work,
save, and invest.

Not surprisingly, these
divergent policies resulted in different economic outcomes.[8] Simply
stated, the United States is now substantially outperforming
Europe. As the following statistics indicate, this has dramatic
consequences for the economic well-being of citizens on both sides
of the Atlantic.

Per capita economic
output in the U.S. in 2003 was $39,700, almost 40 percent higher
than the $28,700 average for EU-15 nations.[9] (See
Chart 3.)

Over the past 10 years,
the U.S. economy has grown at an average annual rate of 3.3 percent
in real terms, 50 percent faster than the EU-15's growth rate of
2.2 percent.[10] (See
Chart 4.)

A report prepared for
the European Commis­sion admitted that "since 1996 the average
annual growth in EU [European Union] output per head has been 0.4
percentage points below that of the US. From holding its own,
Europe is now losing ground."[11]

The report also
acknowledged that "labour pro­ductivity in the EU is on a trend
growth path which is lower than that of the US. Over the period
1996-2003, the EU-15 productivity growth rate averaged 1.4%, as
opposed to 2.2% recorded for the US."[12]

"In the EU," confesses
another European Com­mission report, "there has been a steady
decline of the average growth rate decade after decade and
per-capita GDP has stagnated at about 70% of the US level
since the early 1980s. The dis­parity between the EU and the US
has been par­ticularly remarkable in recent years. For
instance, over the period 1995 to 2001, the US economy accounted
for over 60% of the cumu­lative expansion in world GDP, while
the EU, with only a slightly smaller economy, contrib­uted less
than 10%."[13]

Americans enjoy more
leisure than Europeans because they can afford to purchase labor
and goods that reduce the amount of time spent working at home.
According to one German study, "overall working time is very
similar on both sides of the Atlantic. Americans spend more time on
market work but Germans invest more in household production." The
report further notes that "these differences in the allo­cation
of time can be explained by differences in the tax-wedge and wage
differentials."[14]

A comparative study by
Timbro, a Swedish think tank, found that EU countries would rank
with the very poorest American states in terms of liv­ing
standards, roughly equal to Arkansas and Montana and only slightly
ahead of West Vir­ginia and Mississippi, the two poorest
states.[15]

In August 2006,
unemployment in the European Union was 8.0 percent, including a 7.9
percent unemployment rate in the group of nations that use the
euro. The U.S. unemployment rate in the same month was only 4.7
percent.[16]

Unemployment rates tell
just part of the story because they measure only the number of
unemployed compared to the number of those in the labor force. The
size of the labor force is an equally important statistic. In the
United States, more than 70 percent of the working-age population
has a job, compared to less than 65 percent in the European
Union.[17] (See
Chart 5.)

Not only is the
unemployment rate in the U.S. significantly lower than the EU-15
unemploy­ment rate, but there is also a stunning gap between
the percentage of unemployed who have been without a job for more
than 12 months-12.7 percent in the U.S. versus 42.6 percent in the
EU-15.[18] (See
Chart 6.)

According to an article
in TheAmerican Enterprise, "Since the 1970s, America
has created some 57 million new jobs, compared to just 4 million in
Europe (with most of those in government)."[19]

The article also notes
that "Europe's best brains are leaving in droves. Some 400,000 E.U.
sci­ence and technology graduates currently reside in the
United States, and barely one in seven, according to a recent
European Commission poll, intends to return"; that "European
immi­gration to the United States jumped by some 16 percent
during the 1990s"; and that "there are now half a million New York
City residents who were born in Europe."[20]

There are nearly 20
million unemployed in Europe, including nearly 20 percent of those
who are under age 25.[21]

The European
Commissioner for Economic and Monetary Affairs admitted, "The most
pressing challenges that Europe currently faces are the lack of
growth and new jobs, the grow­ing competitive pressures from an
integrating world economy.… [T]he EU economy still lacks
resilience.… Potential growth remains low at around 2%.
Europe's labour force is still grossly underutilised as witnessed
by low employment rates as well as high and persistent
unemployment."[22]

A special
competitiveness panel of the Euro­pean Commission acknowledged
that "many young scientists continue to leave Europe on graduating,
notably for the U.S. Too few of the brightest and best from
elsewhere in the world choose to live and work in Europe."[23]

Thanks in part to lower
tax rates and the oppor­tunities created by an economy with
less gov­ernment, "millions of Italians, Irish, Germans, and
other Europeans have voted with their feet in favor of America's
balance between work and leisure, with no discernable flow in the
oppo­site direction."[24]

Thanks to higher levels
of economic output and lower levels of taxation, Timbro found that
the average person in the U.S. enjoys about $9,700 more yearly
consumption than the average EU resident, a difference of 77
percent.[25] (See
Chart 7.)

A study found that
"American households…have far more domestic appliances,
television sets, computers, telephones and cars than in most
European countries."[26]

Average total dwelling
space in Europe is just under 1,000 square feet. In the U.S., it is
1,875 square feet for the average household and 1,200 square feet
for poor households. Adjusting for household size, one finds that
poor households in the United States have slightly more dwelling
space than the average European household. The average poor
American has more square footage of living space than does the
average person living in London, Paris, Vienna, and Munich.[27]

British Prime Minister
Tony Blair warned the European Parliament, "What type of social
model is it that has 20 million unemployed in Europe? Productivity
rates falling behind those of the USA? That, on any relative index
of a modern economy-skills, R&D [research and development],
patents, infor­mation technology, is going down, not up."[28]

A study by Eurochambres
esti­mated how long it would take Europe to catch up to
America, assuming no more growth in the U.S. It would take Europe
18 years to reach U.S. income levels, 14 years to reach U.S. levels
of productivity per employee, 24 years to reach U.S. levels of
R&D investment, and 26 years to reach U.S. employment levels.[29]

According to German
financial reporter Olaf Gersemann, "If labor productivity in
Germany and the U.S. continue on the same path as from 1996 to
2003, per capita income in Germany will grow by only 44 percent by
the time Amer­ican incomes double in 2026. Put differently,
within a generation, Americans will enjoy twice the economic status
that Germans do."[30]

The Organisation for
Economic Co-operation and Development (OECD) admits that Europe is
lagging. As reported by The Wall Street Jour­nal, "GDP
per capita in Germany, France and Italy is falling, relative to the
U.S., to levels below those recorded in the 1970s…. 'At
cur­rent trends, with demographics the way they are, the
average U.S. citizen will be twice as rich as a Frenchman or a
German in 20 years,' Jean-Philippe Cotis, chief economist at the
OECD, told us."[31]

In 1980, foreign direct
investment in the United States totaled $127 billion, according to
the Bureau of Economic Analysis. Today, it totals more than $1.7
trillion. In 1980, there was $90 billion of foreign portfolio
investment (just counting holdings of government and pri­vate
securities) in the United States. Today, there is more than $4.6
trillion.[32] Much of
that money-capital that finances new invest­ment-comes from
Europe and at least partly reflects the more market-oriented policy
envi­ronment in the United States.

As noted by Jean-Claude
Trichet, president of the European Central Bank (ECB), "When
com­paring the euro area's economic performance to the US,
there is evidence of increasing dispari­ties in growth. Since
the beginning of the 1990s, the gap in per capita income growth
between the US and the euro area has continu­ously widened-by
0.8% on average per year during the 1990s, increasing to 1.3% per
year from 2002 onward."[33]

"Over a period of 20
years," admits Trichet, "we have been the witnesses of a very
significant structural change across the Atlantic. From the
eighties to the first years of the twenty first century the growth
of labour productivity per hour has been multiplied by more than
two in the US when it has been divided by two in Europe. Overall in
this respect the relative position of the US and of Europe has
changed by a factor 4 to the detriment of Europe."[34]

Women lag behind in
Europe. Reporting on a study from the International Labor
Organiza­tion, Newsweek noted that "women account for 45
percent of high-level decision makers in America, including
legislators, senior officials and managers across all types of
businesses. In the U.K., women hold 33 percent of those jobs. In
Sweden-supposedly the very model of glo­bal gender
equality-they hold 29 percent. Ger­many comes in at just under
27 percent, and Italian women hold a pathetic 18 percent of power
jobs.… Europe is killing its women with kindness-enshrined,
ironically, in cushy wel­fare policies that were created to
help them."[35]

These remarkable
comparisons show Europe's stagnation and are particularly
embarrassing for EU politicians. With great fanfare in March 2000,
EU officials committed themselves to the goal that, within 10
years, Europe would "become the most competitive and dynamic
knowledge-based econ­omy in the world, capable of sustainable
economic growth with more and better jobs and greater social
cohesion."[36] The
Lisbon Strategy, as it is called, is a noble goal, but Europe has
no chance of achieving this goal by 2010.

Indeed, Europe is
falling farther behind the United States in terms of per capita
economic out­put. As noted by the head of the European Central
Bank, "since the launch in 2000 of the Lisbon strategy, the annual
growth rate for the Euro area has averaged 1.8% per year (compared
to 2.8% in the US), thus remaining behind its main competitor."[37]
Politicians in Europe sometimes act as if growth will magically
materialize if they form another committee to discuss
competitiveness, but others apparently understand what is
happening: Only 29 percent of Europeans think the European Union
will catch the U.S.[38]

What Is Wrong with
Europe

Europe's economy is weak
because government is too big. Excessive levels of government
spending result in the misallocation of labor and capital for
unproductive uses. The taxes needed to finance these
counterproductive outlays exacerbate the problem, particularly
since many European gov­ernments impose high marginal tax rates
on work, saving, investment, and entrepreneurship.

Chart 8 shows that
government spending con­sumes nearly 50 percent of economic
output in EU nations, compared to 36 percent of GDP in the United
States. This is regrettable for Europe since academic research
indicates that government spending has an adverse impact on
economic per­formance, particularly when the public sector
climbs above 20 percent-25 percent of GDP.[39]

Yet not all forms of
government spending are created equal. Some types of outlays,
especially government consumption and transfer spending, are
particularly harmful to growth. Other outlays- such as those for
defense, administration of justice, infrastructure, and
education-impose less dam­age.[40] Europe
is further disadvantaged because politicians spend more money on
consumption and transfers. As shown in Chart 9, consumption outlays
use up nearly 21 percent of GDP, compared to less than 16 percent
in the United States. Simi­larly, transfers consume more than
15 percent of output in the European Union, compared to just 12
percent in the United States.

The tax side of the
ledger is similarly dismal for Europe. Tax revenues consume more
than 40 per­cent of GDP in European Union nations, compared to
about 26 percent in the United States.[41] (See
Chart 10.) Just as different types of government spending impose
varying degrees of economic damage, the same principle applies for
taxation.

Both theory and
evidence confirm that taxes on income and profits are the most
debilitating to eco­nomic performance, followed by payroll
taxes. In both cases, European governments have generally made the
wrong choices. Taxes on income and prof­its consume 14 percent
of GDP in European Union nations compared to less than 12 percent
in the United States. (See Chart 11.) The payroll tax gap is even
larger, with such levies consuming almost 12 percent of GDP in
Europe compared to less than 7 percent in the United States. (See
Chart 12.)

While the overall tax
burden is commonly calcu­lated by measuring tax revenues as a
share of GDP, this is an imperfect measure. Its biggest
shortcom­ing is that tax rates and tax revenue sometimes have
an inverse relationship. If a nation has very high tax rates,
taxpayers will have a much greater incentive to change their
behavior in ways that reduce tax­able income. This Laffer Curve
effect means that a nation collects very little revenue in absolute
terms or as a share of GDP, even though the burden of taxation is
very high. Ire­land and Germany illustrate this
phe­nomenon. Germany has Europe's highest corporate tax rate at
38 per­cent, yet corporate tax collections are only 1.3 percent
of GDP. By contrast, Ireland's 12.5 percent corporate rate
generates revenues totaling 3.8 per­cent of GDP.[42]

Marginal tax rates are
a better mea­sure of the tax burden because the
dis­incentive effect of taxation is determined by the tax rate
on incre­mental units of income. For instance, if taxpayers are
allowed to earn $40,000 with no tax but then face a 100 percent tax
rate on every dollar above that amount, they are highly unlikely to
choose to earn more than $40,000 because the marginal tax rate on
those additional dollars would be confiscatory. This extreme
example highlights the importance of marginal tax rates, which is
why the top tax rates on personal income and corporate income are
good measures of whether a nation has a competitive tax regime. It
is also important to compare the degree to which nations impose
extra layers of taxation on income that is saved and invested,
since the effective marginal tax rate on that income will be higher
if governments are allowed to tax it more than one time. (For a
discussion of the argument that Europe­ans are choosing leisure
over work, see Appendix 2.)

While the United States
enjoys a substantial advantage over Europe with regard to the
aggregate tax burden, the advantage shrinks when one looks at
marginal tax rates on personal income. The aver­age top tax
rate in the European Union is nearly 50 percent, which is not that
different from the 43 per­cent top tax rate (including the
average of state income tax rates) in the United States. It is
worth noting, though, that Americans can choose to live in states
that do not impose income taxes, so the 35 percent federal tax
rates is the mandatory maxi­mum, although the 2.9 percent
Medicare payroll tax pushes the effective marginal tax rate
higher.[43] Another
interesting feature of the U.S. system is that the top tax rate is
not imposed until income reaches more than $325,000. As Chart 13
illus­trates, the most punitive tax rates in Europe
gener­ally are imposed once income reaches twice the average
wage.

Irelandas a Role Model for
Europe

By global standards,
European nations enjoy comfortable living standards, but this is
due largely to strong growth before the ex­pansion of the
welfare state. Since then, economic perfor­mance has stagnated.
Many of these nations now suffer from high unemployment and
wide­spread pessimism about the fu­ture, but this does not
mean that reform is hopeless. Even France and Germany, Europe's
least competitive economies, could restore economic growth by
im­plementing the right policies.

The role model that
they should follow is Ireland. Twenty years ago, Ireland was an
economic basket case with double-digit unemployment and an anemic
economy. This weak performance was caused partly by an oner­ous
tax burden. The top tax rate on personal income in 1984 was 65
percent, the capital gains taxes reached a maximum of 60 percent,
and the corporate tax rate was 50 percent.[44] Then
poli­cymakers decided to reduce the burden of gov­ernment.
Tax rates, especially on capital gains and corporate income, were
slashed dramati­cally.[45] Today,
the personal income tax rate is 42 percent, the capital gains tax
rate is just 20 per­cent, and the corporate income tax rate is
only 12.5 percent.

Supply-side tax cuts
were matched by deep reductions in the burden of government
spend­ing. As explained in a recent European Central Bank
study:

The so-called
"Programme for National Recovery" rested essentially on a
deep-rooted expenditure reform. Almost the entire fiscal adjustment
during Phase 1 was placed on the spending side, with primary
expenditure falling by 12% of GDP over the seven-year period after
1982. In the second phase, public spending fell again by over 10%
of GDP. For the total period since 1982, spending even came down by
over 20% of GDP to around 35% of GDP in recent years.[46]

These aggressive
free-market reforms yielded enormous benefits. The Irish economy
has expe­rienced the strongest growth of all industrialized
nations, expanding at an average of 7.7 percent annually during the
1990s.[47] In a
remarkably short period of time, the "sick man of Europe" has
become the "Celtic Tiger." Unemployment has dropped dramatically,
and investment has boomed.[48]

There is every reason
to believe that other European nations would enjoy the same results
if their politicians were to adopt similar reforms. The
accompanying chart shows that free-market policies have led to a
dramatic improvement in Irish living standards, whereas European
nations that cling to statist policies are gradually losing ground
to the United States.

The payroll tax is an
area with a more significant American advantage. Payroll tax rates
in the United States are 15.3 percent, and the rate falls to 2.9
per­cent as income climbs above $94,200. In Europe, by
contrast, payroll tax rates average more than 30 percent, and those
punitive tax rates are often imposed on all income-a policy that
undermines the tenuous link between taxes paid and benefits
received. (See Chart 14.)

The corporate income
tax is one area in which America clearly is at a competitive
disadvantage. As shown in Chart 15, the United States has an
extraordinarily high corporate tax rate, particularly compared to
the average 30 percent tax rate in Europe. The federal rate is 35
percent, and state tax rates (which generally cannot be avoided
since states tax corporate income using formulas based on
characteristics such as sales or assets) push the total tax rate
closer to 40 percent. Moreover, the United States is one of the few
nations that impose an additional layer of tax on companies that
com­pete in global markets. As indicated in Chart 15, a handful
of other nations impose "worldwide taxa­tion," but U.S. rules
are the most onerous.

Like many other
nations, the United States imposes double taxation on some forms of
income. For instance, income from equity investment is
rou­tinely subjected to extra layers of tax. Income is first
taxed at the corporate level, as discussed above. If the after-tax
income is invested in the company, the increase in the company's
value is taxed by the capi­tal gains tax. If the after-tax
income is distributed to shareholders, it is subject to the
dividend tax. The good news is that Bush tax cuts reduced the
double taxation of both dividends and capital gains to 15 percent.
However, even with that much-needed reform, America still suffers
from a competitive dis­advantage. (See Chart 16.)

Finally, the United
States imposes a much smaller tax burden on con­sumption.
European Union nations are required to levy a value-added tax (a
comprehensive form of national sales tax) of at least 15 percent,
and the average tax rate is 19.8 percent. The United States has no
equivalent tax. Sales taxes exist in 45 states, but the rates
average 5 percent, and these levies are usually imposed on a rather
narrow base, leaving substantial shares of consumption untaxed.
(See Chart 17.)

The Role of Other
Policy Choices

Fiscal policy is one of
many factors that affect economic performance. Trade, regulatory,
monetary, environ­mental, and labor policies are just a few of
the other factors that deter­mine competitiveness. As
discussed, Europe suffers from slow growth, and most European
nations have large public sectors. Could these fac­tors be
unrelated? Is it possible that Europe's stagnation is the result of
non-fiscal policy choices?

Certainly, fiscal
policy is just one of the factors that determine economic
performance, and some evidence sug­gests that some European
nations are suffering from excessive government intervention. Yet
the relevant question is whether non-fiscal policy mistakes are
responsible for the gap between Europe and the United States. The
answer almost surely is no. According to the Index of Economic
Freedom, every EU country is at least somewhat
market-ori­ented, earning a ranking of either "free" or "mostly
free." If the fiscal policy variables are removed from the
equation, one-third of the EU-15 nations actu­ally have more
economic freedom than the United States.[49] (See
Chart 18.)

The biggest non-fiscal
policy impediment to European competitiveness is probably labor
reg­ulation. Chart 19 shows that the burden of labor regulation
is particularly severe in Europe. By contrast, European nations
tend to be more laissez-faire in their approach to business
regulation. (See Chart 19.)

Excessive regulation is
partly responsible for Europe's anemic economic performance, but
even the nations with relatively market-oriented regula­tory
systems enjoy less prosperity than the United States. (For a
discussion of the deficiencies of the "Scandinavian model," see
Appendix 1.) High taxes and burdensome spending surely explain much
of the gap between the United States and Europe. As the next
section explains, big government and eco­nomic vibrancy are
incompatible.

Learning from Europe's
Decline

The United States can
learn much from Europe. First and foremost, Europe serves as a
warning about the consequences of big government. If American
politicians allow the welfare state to expand, economic performance
will suffer. Since demographic pressures and misguided policies
have put America on a path toward much bigger government, this is a
particularly timely warning. Simply stated, a French-size
government will mean French-style stagnation.

[1] Office of
Management and Budget, Historical Tables,Budget of the
United States Government, Fiscal Year 2007 (Washington, D.C.:
U.S. Government Printing Office, 2006), pp. 23-24, Table 1.2, at
www.whitehouse.gov/omb/budget/fy2007/pdf/hist.pdf
(July 19, 2006).

[5] Unless
stated otherwise, references to Europe, Western Europe, and the
European Union refer to the EU-15: the 15 nations (Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, Netherlands, Portugal, Spain, Sweden, and the United
Kingdom) that comprised the European Union before it expanded. The
10 new member nations (Cyprus, Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia) are not
included in statistical comparisons because in most cases they are
still recovering from decades of Communist enslavement, and their
inclusion would unfairly depress European economic
statistics.

[6]Angus Maddison,
The World Economy: A Millennial Perspective (Paris:
Organisation for Economic Co-operation and Devel­opment,
2001).

[31] Editorial,
"The European Disease," The Wall Street Journal, February 8,
2006.

[32] Elena L.
Nguyen, "The International Investment Position of the United States
at Yearend 2004," U.S. Department of Com­merce, Bureau of
Economic Analysis Survey of Current Business, Vol. 85, No. 7
(July 2005), pp. 38-39, at www.bea.gov/bea/ARTICLES/2005/07July/0705_IIP_WEB.pdf
(July 21, 2006).

[40]Some forms of
government spending contribute to economic growth by facilitating
private commerce. For more information, see Daniel J. Mitchell,
Ph.D., "The Impact of Government Spending on Economic Growth,"
Heritage Foundation Backgrounder No. 1831, March 15, 2005,
at www.heritage.org/Research/Budget/bg1831.cfm.

[41]Tax revenues
include taxes imposed by all levels of government but exclude
borrowing and non-tax receipts.

[63]For the text of
a U.N. tax harmonization proposal, see U.N. General Assembly,
"High-Level International Intergovernmental Consideration of
Financing for Development," June 26, 2001, at www.un.org/esa/ffd/a55-1000.pdf (July 28,
2006).

[81] Mark
Aguiar and Erik Hurst, "Measuring Trends in Leisure: The Allocation
of Time over Five Decades," Federal Reserve Bank of Boston
Working Paper No. 06-2, January 2006, pp. 1 and 2-3, at
www.bos.frb.org/economic/wp/wp2006/wp0602.pdf
(July 28, 2006).

[86] European
Commission, Economic Policy Committee and Directorate General for
Economic and Financial Affairs, The Impact of Ageing on Public
Expenditure: Projections for the EU25 Member States on Pensions,
Health Care, Long-Term Care, Edu­cation and Unemployment
Transfers (2004-2050), Directorate General for Economic and
Financial Affairs European EconomySpecial Report No.
1/2006, p. 7, at http://ec.europa.eu/economy_finance/publications/
european_economy/2006/eesp106en.pdf (September
29, 2006).

Share

Living standards are much higher in America than in Europe,unemployment is far lower, and growth is much stronger; leftunchecked, however, the growing burden of government threatens toturn America into an uncompetitive European-style welfare state.Ireland shows that reform is possible with dramatic tax ratereductions and a large reduction in the burden of governmentspending.

Rep. Peter Roskam (R-IL) says it's "a great way to start the day for any conservative who wants to get America back on track."

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About The Heritage Foundation

The Heritage Foundation is the nation’s most broadly supported public policy research institute, with hundreds of thousands of individual, foundation and corporate donors. Heritage, founded in February 1973, has a staff of 275 and an annual expense budget of $82.4 million.

Our mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense. Read More